Spielberg Signs Distribution Deal with NBC Universal

The superstar filmmaker had to give up very little to end a year of turmoil with his old partner, Paramount

It didn't take long for Steven Spielberg's new production company to find a home. In one of Hollywood's worst-kept secrets, the superstar director's new company—to be called DreamWorks, just like his old studio—signed a seven-year deal with NBC Universal to distribute the six films it will start releasing later next year.

Terms of the deal weren't released, although BusinessWeek has been told that the company to be headed by Spielberg and Stacey Snider, his partner in the new venture, had to give up very little in the distribution arrangement: DreamWorks will pay Universal 8% of sales on theater tickets and DVDs (after the studio deducts its costs for marketing and distributing the films). Traditionally, studios take as much as 15%, although the number can be lower if production companies bring in their own cash to make the films.

"Universal has always been my home base, so this agreement starts a new chapter in what has been a long and successful association," said Spielberg, who did some of his most famous early work at the studio, such as ET: The Extra-Terrestrial and Jaws.

Reliance Provided $500 Million

The DreamWorks-Universal arrangement ends a year of acrimony and turmoil, during which Spielberg decided to end his three-year arrangement with Viacom's Paramount Pictures (VIA) unit. As part of the arrangement for Spielberg to set up shop elsewhere, the director and his former studio partners agreed on Oct. 5 to produce jointly as many as 40 projects. Paramount will take the lead on the financing and distribution of as many as 20 of the films, while and Spielberg's new company will do the same on another 20 of them.

In each case, the other company has the option of co-financing and co-distributing the film. That might mean that Universal would have an interest in several films, along with India's Reliance media empire, which provided Spielberg more than $500 million to start the new studio. In return for its equity, Reliance owns half the new company and gets distribution rights throughout India.

Spielberg would have a separate arrangement to produce as many as four films for Paramount, including the Transformers franchise. But the Paramount deal allows DreamWorks "to get back to making movies quicker than we might have," says Snider.

Snider, a former head of Universal's studio, who will serve as the new company's CEO. She credits "the maestro," fabled dealmaker David Geffen, a longtime Spielberg adviser and DreamWorks chairman, as working with Hollywood lawyer Skip Brittenham to structure the deal with Paramount that gave Spielberg's company projects on which to begin production. As a result of that deal, Snider expects to put some films into production in January, giving the studio big jump start in the hypercompetitive film industry.

Backlog of Projects

Until then, there's still plenty of work to be done to set up shop at Universal, say sources with knowledge of the arrangement. For starters, a deal for JPMorgan Chase (JPM) to raise a $750 million revolving fund to make the films was put on hold while Spielberg's team negotiated the distribution arrangement with Universal.

Snider also has to put together a company that is likely to be about one-third smaller than the 120 or so employees who worked for DreamWorks when the company was located at Paramount. Several of those people are likely to stay at Paramount. Among the producers expected to join Spielberg and Snider, however, are actor Ben Stiller, and the husband-wife producing team of Walter Parkes and Laurie MacDonald, who frequently produce films with Spielberg.

The deal for Spielberg's new company to set up shop at Universal was hardly unexpected. Spielberg's production offices have been located at a hacienda-style complex that Universal gave to him following his 1982 blockbuster E.T. Spielberg maintains strong relations with Universal and recently dined with Jeffrey Immelt, chairman and CEO of the studio's parent company, General Electric (GE), say sources.

Still, Spielberg & Co. had other offers, including one from Fox (NWS), for which Spielberg has made films in the past, such as Artificial Intelligence. There were also some early talks with the Walt Disney (DIS) that didn't result in an offer.